When I was advising clients, I would first ask what their objective was. Were they investing to accomplish a goal in life or did they simply want to accumulate money?
If it were the latter, I would tell them that I was not the best adviser for them. I see money as a tool, something you exchange for something else that you want or need. Many think of money as an object, but really it is just a number on a piece of paper or computer screen until converted into something tangible. That might be is a house, car or college education for a child.
Money also is a means to store wealth. Without money, we would be forced to barter with each other for goods and services. For most of human history money has been coined not printed. Even when countries started printing their currency, it was redeemable for gold, silver or other precious metals. The metal was the actual currency, not the paper note.
From time to time countries have issued currency without any commodity backing it. We printed Continentals before the Revolutionary War and greenbacks were printed during the Civil War, but for most of our country's history, our money has been backed by gold. With the creation of the Federal Reserve in 1913, we started seeing a major shift by large banking interests to create a system of fiat money. This is money not backed by any commodity. In 1971 we went off the gold standard entirely. A federal reserve note could not be redeemed by specie (gold or silver) but rather was backed by the full faith of the U.S. government. When we were a creditor nation, that meant something, but now, as the largest debtor nation on this planet, such a guarantee is almost laughable.
So what is the future of the dollar?
Let's take a look at the history of other "fiat" currencies for similarities. The Roman Denarius along with the Roman Empire failed. The Chinese Flying Monkey, extinct. France's livres and assignats, au revior. Weimar German Marc, inflated away to nothing. On a more recent note, either currency failures or massive devaluations hit Argentina, Finland, Norway, Thailand, Philippines, Indonesia, Malaysia, South Korea, Hong Kong, Russia, Turkey and Zimbabwe. But these countries are not the USA with its mighty dollar as reserve currency.
So what can we assume about fiat currency? The stories of many of the above mentioned countries have similarities to our own, but for some reason we think the outcome for the dollar will be different. Many would say that the dollar has already failed. Since original issuance in 1913 it has lost 93 percent of its value. Revalued in 1934, it has dropped another 41 percent. As the Federal Reserve continues to print money that has no commodity backed value, inflation erodes what is left of its value. Eventually, there will be so many dollars in circulation that it's value will be essentially nothing. With the collapse of our currency comes the collapse of our economy.
The lesson to be learned here?
Honestly, it is really too late to learn much of anything, only prevent the damage that the dollar collapse will bring. We started with a gold backed dollar, without the dollar there still is gold. I suggest you own some.
• Carol Perry is a retired financial adviser and has been a Northern Nevada resident since 1983. She can be reached at Carol_Perry@att.net.
